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TRENDING: The industry wants answers on Transnet “catastrophe”

by Louise Burgers. The industry wants answers after the Transnet shutdown at SA ports and devastating supply chain disruptions.

by Louise Burgers. “Absolute chaos”. This is how industry analysts have described the Transnet hack attack and subsequent disruptions to South Africa’s supply chain over the past 10 days. With communication from Transnet almost non-existent, there is still much speculation and many questions unanswered.

On the actual day, July 22, that Retailing Africa published Investec logistics and pricing analyst, Denys Hobson’s warnings of global shipping disruptions to the retail high season due to Covid outbreaks, lockdowns, and other shipping delays, Transnet evoked a force majeure as an alleged cyberattack brought its operations at all South Africa’s ports and inland container depots to an abrupt halt when its computer systems were compromised. While the force majeure was lifted on Monday, August 2, and operations resumed slowly, more questions remain.

The disruptions to South Africa’s supply chain over the past month have been devastating: from the almost total closure of our ports for 12 days; and this just after the widespread civil unrest that shut down our most important port terminal, Durban, as well as our most important supply corridor, the N3 highway between Gauteng and Durban – gateway to the Southern Africa supply chain.

The industry has already been plagued with widespread global shipping disruptions which threaten the traditional retail high season, including Black Friday and Christmas (from the Suez Canal shutdown earlier this year when the container ship, the Ever Given was stuck; to the ongoing COVID-19 pandemic which has led to staff shortages at some global ports due to new Covid outbreaks). Shipping analyst, Hobson, said while Transnet had started bringing some systems online last week, it was “absolute chaos”. He added: “What Transnet are putting out to the market versus what’s really happening on the ground are two very different things.”

Ctrl, Alt, Disrupt

The problem lies in the fact that Transnet appeared to have no contingency plans in place and resorted to manually trying to offload and load sensitive and perishable cargo. Officials were even seen walking around with clipboards at the ports, manually trying to record container batches. About 6,300 containers are in transit every day in  South Africa – and about 4,100 of those are out of the Durban port, according to Gavin Kelly, CEO of the Road Freight Association (RFA). With about 5,000 trucks standing idle for the week or so of port disruptions, the lost revenues and associated costs (security, staffing, fees, etc), losses will run into well over R30 million just for the trucking industry.

“On July 22 when Transnet announced that their system had been impacted and potentially, there’s a cyberattack, they said they would activate their contingency plan, but no one really knows what exactly that was; and then they said they were reverting to manual processes, which was also very unclear. Some of their staff even reverted to using Gmail accounts,” recounted Hobson. “It just highlighted how inefficient and backward they really are in terms of global standards. It shows how State-Owned Entities (SOEs) should not try run businesses. The impact is significant because there are already delays from the looting the week before,” said Hobson. He highlighted that  there will be stock shortages; problems with products reaching end-of-life cycle; time-sensitive cargo; and cash flow issues that come into it with lost sales, lost trading days; and other pressures with urgent stock that now had to be air freighted in; as well as the recent typhoons that went through China and Shanghai which delayed flights; and more recent Covid outbreaks in important port cities in Asia which again disrupted operations.

“Transnet are being very quiet about this. There is wide speculation in the industry, but we do know that they flew in IT specialists to assist them and try figure out what was going on. But they haven’t been forthcoming on who is actually responsible for the breakdown in their systems. Basically, Transnet were caught with their pants down. What was their actual contingency plan? They were walking around with clipboards at the ports at one point recording container numbers. So, there are big delays – from parts to trade flows. It has raised a lot of questions for the future. For manufacturers back in Europe and China, having these kinds of delays in vital commodities has a knock-on effect in their economies as well. And it puts jobs at risk. It is a catastrophe,” Hobson reiterated.

Kelly, has been a vocal critic of Government’s handling of security for truckers traversing our major highways who have suffered unimaginable losses, in life, goods and vehicles, for several years. The past month’s violence and shutdown of our critical supply chains in South Africa, has just highlighted what the RFA has been saying all along. But this time, it is in headlines around the world, which is another dent in our country’s already fragile global reputation. “The first question is, how was this possible? This is critical infrastructure, critical to the functioning of our ports and to international trade. The ships that come past South African ports are part of a global leg and we are a stop on that leg, so we are messing with international shipping schedules. The second question was when we would be up and running again? There was very little communication. Transnet seems to have gone into major panic and closed ranks. The third issue is this: it has happened and what we now need to ensure as a country, is that it doesn’t happen again. We need a bulletproof system that can’t be hacked or fail,” emphasised Kelly.

Under pressure

It really puts capacity under pressure, explained Hobson. “For retailers in particular, their shipment days, arrival times at the Distribution Centres and then in store, are crucial for their planning for the different sales cycles, to keep shelves stocked, for consumer promotions.” Across the board, all retailers will be impacted in one way or another, as there were already shipping delays from the Far East. “The impact of China’s recent Yantian Port Covid outbreak a month ago was twice the impact of the Suez Canal blockage, and ended up with a massive backlog of containers being shipped as it was only operating at 30% of capacity, at what is one of the biggest ports in the world. You already saw blank sailings taking place; now there’s a massive shortage of equipment available; and 128 vessels bypassed the port, creating backlogs elsewhere as shipping lines were rerouting their vessels mid-voyage.”

The pressure on cash flows is huge when stocks don’t arrive, as retailers pay 30% in advance for production to begin with suppliers. Hobson says delays at international ports were already running at three to seven weeks even before South Africa’s supply chain was severely disrupted by the civil unrest and Transnet shutdown. “We’ve seen retailers now placing their orders long in advance as they would rather sit with the stock in their DCs, than run the risk of it not arriving in time because the delays are so significant and disruptive right now,” added Hobson.

Kelly describes the past week as a “nightmare”. “Immediately we couldn’t move goods in and out of our ports. SARS was disconnected from the system so we couldn’t get clearance. We tried to move perishables manually – from produce to flowers to frozen meat, cheeses, and so on. Anything with a sell-by date. Lots of citrus. We export tons of fruit out of South Africa.”

Deep impact

Nomu brand director, Paul Raphaely pointed out that when South Africa is unstable and prone to disruption, manufacturers at the very least expected to be able to export their goods. “But when that is fraught too, what is next? It is very demoralising. As a small to medium, independent manufacturer which is feeling every one of these gut punches – from sales and retail disruption, to Eskom power outages, to Covid lockdowns – and to now have force majeure declared over the ports… We are aggrieved at the lack of transparency, the lack of reassurance,  and apparent lack of control, which speaks to an administration that is overwhelmed and apparently unable to defend itself. If you are going to have two weeks of international coverage that will highlight how out of control our Government is… no wonder it now appears that literally anyone can hold the Government to ransom.

“Our brand is not so robust that we can put up with this sh*t indefinitely. It won’t kill us, but it is incredibly dispiriting; and in a commercial sense, it will be devastating if we must turn away crucial international contracts that we have been working on for several years, because our ports may not be operating properly when we need to ship our products. This has a knock-on effect on the entire logistics and manufacturing industry – from port handlers, to the trucking industry, the farmers, manufacturers, retailers, all exporters, and so on,” said Raphaely.

Retailing Africa’s legal columnist, Nikita Theodosiou, an associate at Consilium Legal, warned in her column this week, that Transnet may not be entirely free of repercussions from the industry: “The pertinent question is: can the cyberattack really be deemed to be beyond the reasonable control of TPT? A number of cyber security experts have weighed in on this question and expressed their opinion that the breach of TPT’s online data could have been prevented if Transnet had adequate defence systems in place… It would appear that TPT has poor cybersecurity practices in place which may have contributed to the compromised position that they found themselves in following the cyberattack. TPT has also displayed a lack of business continuity and IT disaster recovery plans. The communication released by TPT has indicated that they were working on manual processes whilst most of their IT infrastructure was offline. This suggests that they were not sufficiently prepared to manage the risk; that their cybersecurity programme is immature; and that they didn’t have the necessary controls in place to assist in the recovery of their compromised IT systems.”

What’s next?

“Government needs to clamp down firmly on anyone that disrupts our key logistical routes, so that our trucks and goods are not there to be looted every time there is a service delivery protest or someone is unhappy with the Government,” said Kelly. He acknowledged though, that the bigger danger is that South African ports could be bypassed if seen as unsafe and unreliable. Neighbouring ports were seen as “diabolical”, so South Africa often got a ‘free pass’, as ours were the safest ports. Now, however, with the upgrade and improvement of infrastructure at many African ports in recent years, South Africa needs to be excellent and consistent in service delivery at its ports.

Said Kelly, “Our first port of call is to restore international confidence; and to restore confidence in our supply chain, which is vulnerable.” As a country, we have allowed our greatest asset, the railways, to be destroyed, added Kelly, who said it was an absolute necessity that the country had to have mass public transport that was affordable and could take cargo across the country.

“What this has really highlighted for our economy is the importance of supply chains and the relevance of importing and exporting. To give you an idea, freight rates out of China have now increased from $1,500 this time last year to $12,000 for a 40 foot container going into August 2021. That is a significant impact,” concluded Hobson.

 

Main image credit: Photo by Martin Damboldt from Pexels.

 

 

Louise Burgers is the Publisher and Editor and Co-Founder of RetailingAfrica.com. She has spent over 20 years writing about the FMCG retailing, marketing, media and advertising industry in South Africa and on the African continent. She has specialised in local and Africa consumer trends and is a passionate Afro-optimist who believes it is Africa’s time to rise again and that the Africa Continental Free Trade Agreement (AfCFTA) will be a global gamechanger in the next decade.

 

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